Tighten Crude Oil, RBOB Bear Risk "Down Here" | RJO Futures

by RJO Market Insights

May 10, 2017 8:39AM CDT

JUN CRUDE OIL

The past month's collapse has yet to be derailed by a bullish divergence in momentum resulting from either a recovery above a prior corrective high or an initial counter-trend high. This would change however if the market recovered above Mon's 46.98 high detailed in the 240-min chart below.

We can "speculate" that Fri's 43.76 low completed a 5-wave Elliott sequence as labeled, but there's no objective proof of that count at this time. A recovery above 46.98 would, in fact, confirm at least the intermediate-term trend as up finally define that 43.76 low as THE end of the decline from 12-Apr's 54.14 high. In this regard 46.98 becomes our new short-term risk parameter from which traders can rebase and manage the risk of a still-advised bearish policy.

Throughout most of Apr we highlighted the importance of 22-Mar's 47.01 low as a pivotal support area. Since broken on 04-May, this now-former support area would serves as a new and key resistance candidate per any broader bearish count. Could the market spike above there before resuming a broader bear? Sure. But especially in light of a recovery above our new short-term risk parameter at 46.98 that would confirm AT LEAST the intermediate-term trend as up, there would be no way to know that such 47.00+ strength isn't part of a broader reversal higher or even resumption of the major uptrend from Feb'16's 26.05 low.

Indeed, only a glance at the daily chart above is needed to see that, to this point, the decline from 03-Jan's 55.24 high is only a 3-wave structure. Left unaltered by a relapse below 43.76, this year's relapse could be just a correction within a new major bull market. And the return to a historically bearish 27% reading in the Bullish Consensus (marketvane.net) measure of market sentiment is certainly the kind of ancillary evidence that has warned of and accompanied major base/reversal environments in the past.

IF IF IF a 47.00+ spike is "just" a corrective spasm, we'll be able rather easily and effective navigate such after the market stems that spike with 1) a bearish divergence in mo and 2) a relapse below a smaller-degree corrective low like yesterday's 45.53 low and certainly Fri's 43.76 low. BUT IF Fri's 43.76 low completed a major bull market correction from Jan's 55.24 high, there will likely be no more acute and efficient risk/reward buying opportunity than the moment the market pokes above 47.00.

Traders are reminded of a longer-term technical construct that warns of a major correction or reversal of the secular bear trend from May'11's 114.83 high shown in the monthly log scale chart below. The market has thus far rejected the immediate area around the (54.69) 50% retrace of 5-year bear from 114.83 to 26.05, so it's entire possible that 03-Jan's 55.24 high is a considerable one that could stand for a long time ahead of further lateral-to-lower prices for months or even quarters to go. By the same token however, a near-term recovery above 47.00 would be the first smaller-degree evidence that would defer or threaten such a broader bearish call and could resurrect a major bullish one.

These issues considered, traders are advised to toggle directional biases and exposure around the 47.00-level, maintaining a bearish policy whilst below this level and moving to a cautious bullish policy above it. Subsequent weakness below a recent smaller-degree corrective low (45.53 currently) would threaten that bullish call and re-expose a broader bear.

JUN RBOB

The technical construct and expectations of the RBOB market are virtually identical to those detailed above in crude oil with yesterday's 1.5296 high serving as a tight but objective risk parameter from which traders are advised to rebase and manage the risk of a current bearish policy. A recovery above 1.5296 would defer or threaten a bearish count enough to warrant moving to a neutral-to-cautiously-bullish policy on the immediate break above 1.5296.

Contributing to a base/reversal threat environment "down here" is the market's current proximity to a pair of Fibonacci progression and retracement relationships at 1.4722 and 1.4807 shown in the weekly chart of the Jun contract below along with the market's return to historically bearish sentiment levels that have warned of and accompanied major base/reversal environments in the past.

In sum, a bearish policy remains advised with a recovery above 1.5296 required to defer or threaten this call enough to warrant moving to a neutral-to-cautiously-bullish policy following the immediate break above 1.5296.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.